‘Prepare for a
Tight Budget’

By Wezi Tjaronda WINDHOEK Namibians should expect a tight budget as opposed to an expansionary budget as seen in South Africa, according to local economists. This financial year’s budget, to be tabled on Thursday this week should therefore not hold surprises for Namibians, considering the govern-ment’s move to try and reduce expenditure. While company and individual tax relief could have been expected, economists say this is highly unlikely because it may undermine the government’s efforts to achieve a surplus. Running a surplus now would make the country run a huge deficit in three years to come because the ideal situation would be to run a deficit until a time when the economy can afford it, said Martin Mwinga, First National Bank’s Economist. “A surplus should come from high economic growth,” Mwinga said, adding that while the government’s intentions to run a surplus were good, this would bring the economy down. For some time now, individuals in the higher income bracket have been paying 35 percent tax, but tax relief will not be forthcoming. “There is nothing much to expect. It will be business as usual,” said Mwinga Unlike South Africa’s expansionary budget, Namibia’s budget is expected to be a tight one, which the economists say is not conducive for the growth that the country sorely needs. The economy needs money to expand, said Mwinga, citing municipalities, which need more money for infrastructure development. The situation at the moment, he added, is that Namibia’s economy is declining due to the poor performance of most of its sectors. “Its output has declined. Businesses did not have much output. All major sectors are under pressure,” he said. Faced with a situation like this, the government should have pumped more money into the economy for infrastructure development and tax relief but a tight budget, which is envisaged, will worsen the situation. “We need to allocate more money for SMEs, consumers need relief to boost economic activity. The profitability of companies is going down. Some companies in the fishing sector are closing down and government needs to come in to support the companies to grow and cut the unemployment rate,” he added. Last year, when she tabled the 2005/6 financial year Budget, Finance Minister Saara Kuugongelwa-Amadhila projected that total revenue collection from the country’s own sources in the 2006/7 financial year should amount to N$13 billion, with an expected budget surplus of one percent of GDP. The financial year was expected to produce a deficit of 1.2 percent. The improved outlook of the revenue collection was supposed to produce a budget surplus of 1.2 percent of GDP in 2006/7 and 0.8 percent in 2007/8. Economists agree that due to efficiency in revenue collection and a windfall from SACU receipts, the country may see a minimal deficit or a surplus, according to Senior Researcher at Nepru Klaus Schade. The researcher acknowledged that the Ministry of Finance has made great strides towards collecting value added tax (VAT) and company taxes. He also said the country also expected higher revenue from SACU, which could contribute to the status quo. The government has also seen an improvement in fiscal discipline, judging by the past financial years, which did not have additional budgets except for the previous year, when there was a minimal additional budget to cover the expenses of the governmental medical aid fund (PSEMAS). While contending that tax relief would undermine a surplus, Schade also said the government would be cautious about increasing social grants. Since the change of governments in March last year, the priorities, which are mainly education and health, are expected to remain the same. Schade said the rising costs associated with HIV/AIDS and challenges such as shortage of teachers and classrooms in the education sector would still be the two sectors getting an allocation of between 35 and 40 percent. The budget may follow the South Africa trend by increasing excise duties on commodities such as wines, tobacco and cigars, certain cosmetics and leather products, among others. Some of these products saw an increase of between five and 20 percent when South Africa’s budget was tabled last month. Schade said it would also be interesting to see if the minister would introduce luxury tax this year. Last year, Kuugongelwa-Amadhila said the abolition of luxury tax in 2002 had contributed to a loss of revenue to the state. She added that government was envisaging the re-introduction of a special VAT rate for luxury goods.